Tags: debt | rates | Treasury | interest

Fiscal Times: Rising Rates Could Speed Up the National Debt Clock

By    |   Friday, 14 June 2013 08:16 AM

The national debt could head toward the moon if interest rates continue on an upward trajectory, an analysis by The Fiscal Times warns.

When rates go up, it costs more to service the public debt — kind of like what a homeowner with an adjustable or floating mortgage experiences when he gets socked by interest rate increases.

The interest rates on federal debt began rising in May, with the rate on the 10-year Treasury jumping from 1.66 percent to a "stunning" 2.2 percent this week, The Times said.

Editor's Note:
Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

The amount may seem negligible to the average American, but every tiny decimal looms large when the U.S. debt is already such a towering amount.

"That 54-basis point increase looks small to the casual eye," The Times stated. "But if it continues, the higher yield could increase by billions of dollars how much money the federal government spends to service the $16.7 trillion national debt."

The Congressional Budget Office (CBO) projected earlier this year that the nation would have to spend $223 billion on net interest payments in 2013. But the actual increase in rates is already 10 basis points higher than the CBO projections for the year.

The Times noted that every dollar used to service the debt either has to be subtracted from a government program or it has to be added to the existing deficit.

In May, the CBO forecast a deficit of $642 billion this year, a decline of $445 billion from 2012. A significant portion of that improvement has been attributed to increased taxes rather than to government austerity efforts.

Over the next decade, according to The Times, higher interest payments will eat up a bigger share of the federal budget. Interest payments are already expected to leap from $223 billion in 2013 to $823 billion in 2023, according to earlier CBO estimates, because of anticipated increases in the 10-year Treasury note's interest rates that could prove to be underestimated.

While 2013 deficit projections may have moderated, the U.S. debt problem has not been solved by any stretch of imagination, former Sen. Phil Gramm, R-Texas, and Steve McMillin, a former Office of Management and Budget deputy director, wrote in The Wall Street Journal.

The duo said that under President Obama, the national debt has ballooned by almost $6.2 trillion, the equivalent of $78,385 per family of four

Gramm and McMillin explained that the Federal Reserve's near-zero interest rate policy is merely delaying the reckoning that is bound to come.

"Sadly, nations generally discover the truth of Albert Einstein's dictum that compound interest is the most powerful force in the universe—not through the happy accumulation of wealth but through the agonizing enslavement of debt," they wrote.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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The national debt could head toward the moon if interest rates continue on an upward trajectory, an analysis by The Fiscal Times warns.
Friday, 14 June 2013 08:16 AM
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